EDNC DEFENDING MORTGAGE FRAUD CASES - PowerPoint

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					      DEFENDING
“MORTGAGE FRAUD” CASES

                  KEVIN A. TATE
 Federal Defenders of Western North Carolina
 Eastern District of North Carolina CJA Training
             Wrightsville Beach, NC
                 October 9, 2009
         CHARGING SCHEMES
   CONSPIRACY
       BANK FRAUD
       WIRE FRAUD
       MAIL FRAUD
       MONEY LAUNDERING
       HONEST SERVICES
       EQUITY SKIMMING
       PARALLEL STATE PROSECUTION/CIVIL SUITS
        Common Mortgage Fraud
             Schemes


   Fraud for Housing

   Misrepresenting information for primary
    residence
           Mortgage Fraud Schemes
   Fraud for Profit
       Fake Properties
       Fraudulently inflating property values

   Property Flipping
       Typically a fraudulent appraisal

   Equity Skimming
       Straw buyer obtains mortgage
       Straw buyer signs property over to investor
       Investor does not pay mortgage

   Foreclosure Rescue Scams
       Homeowner transfers deed, then consultant strips equity
        through sale or second mortgage

    Liar Loans
                Loans
   Jumbo/Non-conforming loans
       First Mortgages - $417,000
       Areas with high-cost homes – $729,750
       Second Mortgages - $208,500
   Liar Loans/Low-doc loans/No-doc loans
   HELOC = Home Equity Line of Credit
   Secondary Market
   Subprime Loans
Forms:      Residential Uniform Loan Application
URLA/1003
                   Litigation Tactics
   DUPLICITY AND MULTIPLICITY CHALLENGES (FLUSH OUT AND MAKE
    GOVERNMENT COMMIT TO A THEORY)
   MOTION TO PRECLUDE OPINION/EXPERT EVIDENCE
       GOVERNMENT EXPERT WITNESS CONSTANCE WILSON
       http://www.interthinx.com/pdf/ITX_InvestTeam_broFNL.pdf
        SEEK TO DETERMINE HOW MUCH GOVERNMENT IS PAYING WILSON
        ○
        FOR TESTIMONY
      ○ WHAT IS THE ARRANGEMENT BETWEEEN INTERTHINX AND
        DEPARTMENT OF JUSTICE FOR CONTRIBUTION TO HER WEBSITE
        AND PUBLICITY FOR DOJ MORTGAGE FRAUD INITIATIVES
   DAUBERT/KUMHO CHALLENGE FED. R. EVID. 702 AND 704
      ○ OPINIONS THAT TRANSACTION AND/OR DOCUMENTS USED WERE
        FOR “FRAUDULENT PURPOSE”
      ○ CONCLUSORY TESTIMONY REGARDING THE “ROLE OF MORTGAGE
        FRAUD PARTICIPANTS”, “THE PROPRIETY OF MORTAGE LOAN
        DOCUMENTS”, AND “THE STRUCTURE AND DIVISION OF WORK
        WITHIN MORTGAGE FRAUD ORGANIZATIONS”
      ○ CONCLUSORY TESTIMONY REGARDING “ECONOMIC LOSS” , “THE
        VALUE OF REAL ESTATE”, “AMORTIZATION” AND “PROFIT/LOSS
        ANALYSIS”
            PRE-TRIAL MOTIONS
   BILL OF PARTICULARS

    •   PIN GOV’T DOWN ON THEORY OF FRAUD AND THE EXACT FALSE
        STATEMENTS CHARGED AS ITS THEORY OFTEN “EVOLVES” BASED ON
        FACTS ADDUCED AT TRIAL

    •   FALSE STATEMENT OR SCHEME CHARGED IN INDICTMENT MUST
        MIRROR STATEMENT OR SCHEME PROVEN AT TRIAL

    •   IF NOT, ANY VARIATION EFFECTS A DEFENDANT’S SUBSTANTIAL
        RIGHT TO BE TRIED ON CHARGES PRESENTED TO THE GRAND JURY.
        SEE STIRONE V. UNITED STATES, 361 U.S. 212, 217 (1960); UNITED
        STATES V. HOOVER, 467 F.3D 496 (5TH CIR. 2006)
            PRE-TRIAL MOTIONS
    MOTION TO STRIKE PREJUDICIAL SURPLUSAGE
    FED.R.CRIM.P. 7 (d)
    UNITED STATES V. MILLER, 471 U.S. 130, 136-37 (1985)
     (ALLEGATIONS UNNECESSARY TO PROVE THE CRIME ARE
     SURPLUSAGE)
     “MORTGAGE FRAUD” IS NOT A FEDERAL OFFENSE
           TERM IS OVERLY PREJUDICIAL. FED.R.EVID. 402 AND 403
           LEADS TO JURY CONFUSION AS TO OFFENSE COMMITTED
    ○   “FRAUDULENT FLIP”
    ○   “MORTGAGE FRAUD SCHEME”
    ○   “PROMOTER”
    ○   “INFLATED APPRAISAL”
    ○   “THE SCHEME”
    AVOID MASS STIPULATIONS TO
     VOLUMINOUS DOCUMENTS
   YOU ARE BEING SET UP FOR INTRODUCTION OF PREJUDICAL
    1006 SUMMARIES TO BE DISPLAYED TO JURY
     WITNESSES ARE OFTEN GOVERNMET AGENTS WHO WILL
      TAILOR TESTIMONY AND EXHIBIT TO EXPLAIN TRIAL
      EVIDENCE AND GOVERNMENT VERSION OF EVENTS
     WILL CERTAINLY BE USED DURING PROSECUTION’S CLOSING
      ARGUMENTS
      * ARGUE THAT SUMMARY DOES NOT ACCURATELY REFLECT
      UNDERLYING DOCUMENTS*
      * INVOKE RULE 1002 “BEST EVIDENCE RULE* TO PRECLUDE
      INTRODUCTION OF DOCUMENTS AND INCLUSION IN ANY SUMMARY*
    - IF YOU BLINDLY STIPULATE TO THE ADMISSION OF VOLUMINOUS
      RECORDS WITHOUT EVER REVIEWING THEM THE PROSECUTION
      WILL PREPARE A SELF-SERVING CHART TO CONVICT YOUR CLIENT
    APPROACH TO DEALING WITH
    TESTIFYING STRAW BUYERS
   INVESTIGATE AND ATTEMPT TO INTERVIEW STRAW BUYER AND
    DETERMINE IF VICTIM OR CO-CONSPIRATOR
   MAKE THE GOVERNMENT ELECT WHETHER THE BUYER IS AN
    INDICTED OR UNINDICTED CO-DEFENDANT OR VICTIM
   IF GOVERNMENT DECLARES THE WITNESS A “VICTIM”: MOVE TO
    PRECLUDE 801 (d) (2) (E) STATEMENTS/TESTIMONY BY WITNESS
   IF GOVERNMENT DECLARES THE WITNESS A “CO-DEFENDANT”
       HAS THE WITNESS BEEN CHARGED ?
        ○   NO= REQUEST IMMUNIZED WITNESS INSTRUCTION PRIOR TO OR FOLLOWING
            TESTIMONY
        ○   YES= REQUEST INSTRUCTION THAT TESTIMONY MUST BE CONSIDERED BY
            JURY USING GREAT CAUTION AND CARE
       IF A CONVICTION RESULTS, ELECTION WILL BECOME RELEVANT TO
        SENTENCING GUIDELINES AS ONE PERSON CANNOT BE BOTH A CO-
        DEFENDANT AND VICTIM
        FRAUD/HONEST SERVICES
              DEFENSES
   NO SPECIFIC INTENT TO DEFRAUD
       CONDUCT WAS RECKLESS OR NEGLIGENT
   “HONEST SERVICES PROSECUTIONS”
       USED AGAINST UNDERWRITERS, BROKERS AND
        APPRAISERS
        ○   *CONDUCT MUST BE INTENDED TO DEFRAUD THE
            LENDER*
        -   *DEFENDANT MUST HAVE AN ACTUAL FIDUCIARY
            RELATIONSHIP WITH LENDER OR BUYER*
        -   *A DEFENDANT IS NOT ENTITLED TO CREDITS
            AGAINST LOSS PURSUANT TO 2B1.1 (E) FOR HONEST
            SERVICES CONVICTIONS*
        BANK FRAUD DEFENSES
   NO FEDERAL OFFENSE KNOWN AS “MORTGAGE
    FRAUD”
   JURISDICTIONAL CHALLENGES TO BANK FRAUD
   18 U.S.C. § 1344 (BANK FRAUD)
       DEFRAUDED LENDER MUST BE IDENTIFIED IN
        INDICTMENT
       DEFRAUDED LENDER MUST BE INSURED BY FDIC
        ○   “COUNTRYWIDE” LOANS MAY NOT BE PROSECUTED UNDER
            1344
        ○   BANK OF AMERICA IS NOT A VICTIM FOR COUNTRYWIDE
            MORTGAGE LOANS ALTHOUGH NOW A SUBSIDIARY
        ○   CREDIT UNIONS AND THRIFT LOANS ARE NOT APPLICABLE
MAIL/WIRE FRAUD DEFENSES
- MAIL AND WIRE FRAUD
  *REQUIRES MAILING OR WIRE IN FURTHERANCE
 OF THE FRAUD SCHEME
 *TIMING OF THE MAILING IS CRITICAL
 *HAS THE FRAUD ALREADY BEEN
  COMPLETED AT THE TIME OF MAILING OR
 WIRE
 *IF SO, MAILING OR WIRING COULD NOT
 HAVE BEEN IN FURTHERANCE OF THE OFFENSE
        CONSPIRACY DEFENSES
   SCRUTINIZE THE “SCHEME TO DEFRAUD”
       MUST INVOLVE SOME FORM OF A “PLAN OR PATTERN”
        SEE E.G. UNITED STATES V. DOBSON, 419 F.3D 231, 239
        (3D Cir. 2005) (discussing “culpable participation
        requirement”)
       DEFENSE MAY BE APPLICABLE TO APPRAISERS, STRAW
        BORROWERS AND OTHER PERSONS WHO MAY HAVE
        ENGAGED IN ONE OR LIMITED REAL ESTATE
        TRANSACTIONS BUT DID NOT PARTICIPATE IN THE
        LARGER SCHEME
       ELICIT EVIDENCE ON CROSS OF
            BUYER / SELLER RELATIONSHIP
            MULTIPLE CONSPIRACIES
            DISTANCE CLIENT FROM ILLEGAL CONDUCT OF CO-
             DEFENDANTS AND TESTIFYING WITNESSES
          MATERIALITY DEFENSE
        IS THE LENDER A VICTIM ?
   MATERIALITY DEFENSE
       WAS THE OMISSION OR FALSE STATEMENT “MATERIAL” TO THE
        DECISION TO FUND THE LOAN
       “ THE GIANT POOL OF MONEY” NPR EXPOSE’ FEATURED ON
          PROGRAM “THIS AMERICAN LIFE”
       MSNBC – HOUSE OF CARDS”
       DATELINE – “IF YOU HAD A PULSE, WE GAVE YOU A LOAN”
            CHRONICLES THE COMPLICITY OF THE MORTGAGE LENDING INDUSTRY IN
             ENCOURAGING MORTGAGE FRAUD
                  SECURITIZATION AND “BUNDLING” OF LOANS FOR IMMEDIATE SALE TO
                   OVERSEAS INVESTORS
                  “STATED INCOME”
                  “NO CLOSING COSTs AND OTHER LENDER INCENTIVES”
                   SIMULTANEOUS 1ST AND 2ND MORTGAGES BY SAME LENDER
                  SIMULTANEOUS CLOSINGS
                  PAYMENT OF “YIELD SPREADS” TO BROKERS
                  QUOTAS FOR UNDERWRITERS
                  INVESTMENT AAA RATING COMPANIES
            MONEY LAUNDERING
               DEFENSES
   SECTION 1957 OFFENSES ONLY INVOLVE “PROCEEDS”
    (PROFITS) OF PRIOR COMPLETED CRIMINAL OFFENSES

   TIMING OF TRANSACTION IS KEY

       WAS THE SCHEME COMPLETED ? IF NO, TRANSACTION DOES
        NOT APPLY FOR PURPOSES OF 1957. SEE E.G. UNITED STATES
        V. VARNADO, 3:06 CR 415 (W.D.N.C. 2006);(MAKING
        ARGUMENT IN HEALTHCARE FRAUD CASE); UNITED STATES V.
        MYRNA TRAN, CR 05-00124 (N.D. TEXAS 2005)

       IN BOTH VARNADO AND MYNA TRAN A NOMINEE WAS USED
        TO OPEN BANK ACCOUNT THAT UNLAWFUL PROCEEDS WERE
        WIRED INTO. THE ARGUMNET IS THAT THE SCHEME WAS NOT
        COMPLETE AS THE SCHEME CONTINUED WHEN MONEY WAS
        TRANSFERRED OUT OF THE NOMINEE ACCOUNTS TO
        PRINCIPAL CONSPIRATORS
           MONEY LAUNDERING
              DEFENSES
   PRESERVE AND CHALLENGE VENUE
   THE PROSECUTION BEARS THE BURDEN OF ESTABLISHING VENUE AT
    TRIAL BY A PREPONDERANCE OF THE EVIDENCE
   QUESTION IS WHERE THE OFFENSE BEGUN, CONTINUED
    THROUGH OR ENDED SEE UNITED STATES V. CABRALES, 524 U.S. 1
    (1998)
     *FRAUD OFFENSE IS COMPLETE WHEN AND WHERE LOAN
       APPLICATION SUBMITTED AND APPROVED FOR FUNDING*
   CONSTITUTIONAL VENUE PROVISONS “WERE DESIGNED TO BENEFIT
    THE ACCUSED IN CRIMINAL TRIALS. SEE E.G. UNITED STATES V.
    SMITH, 452 F.3D 323, 334 (4TH CIR. 2006)
   VENUE MUST BE APPROPRIATE FOR EACH AND EVERY COUNT IN THE
    INDICTMENT. SEE UNITED STATES V. BOWENS, 224 F.3D 302, 308
    (4TH CIR. 2000)
What is the Loss per Property?
   100% of the loan

   Loan - Value of Home = Loss

   “Equity Spread”

   0% of the Loan
         Who is the Victim?



Seller                           Secondary
           Closing   Lender
                                  Market




                       Is loss reported by Victim
                       for restitution the same as
                       “loss” for the Guidelines?
   USSG § 2B1.1, n 3(E)(ii)
Loss shall be reduced by the following:

In a case involving collateral pledged or
otherwise provided by the defendant, the
amount the victim has recovered at the
time of sentencing from disposition of the
collateral, or if the collateral has not been
disposed of by that time, the fair market
value of the collateral at the time of
sentencing.
       USSG § 2B1.1, n.3(D)(i)
   Q: What do Guidelines say about the basis
    for extra $70K for punishment purposes?

   A: USSG § 2B1.1, n.3(D)(i)
    - Exclusions from Loss - Loss shall not
    include the following: Interest of any kind,
    finance charges, late fees, penalties,
    amounts based on an agreed-upon return
    or rate of return, or other similar costs.
    Get Credit for Value of the House


   HUD from original transaction (discovery)
   Spreadsheet of loss (discovery/USPO)
   HUD from foreclosure sale (from party to
    transaction – buyer/seller/lender/title)
   “Victim” itemization (phone calls, email,
    etc.)
   County Appraisal docs (internet)
   Consider asking Court for subpoena
     CASES DISCUSSING LOSS
   United States v. Crandall, 525 F.3d 907,
    912 (9th Cir. 2008) (Applying 2B1.1 it is
    error not to reduce loss by the value of
    properties).
   United States v. Leonard, 529 F.3d 83, 92-
    93 (2d. Cir. 2008) (error not to reduce
    “loss” by investment’s value to victims).
   United States v. Goss, 549 F.3d 1013,
    1019 (5th Cir. 2008) (loss must be reduced
    by value of collateral returned).
    CASES DISCUSSING LOSS
   United States v. Coghill, 204 Fed. Appx. 328
    (unpublished) (4th Cir. 2006) (loss is outstanding
    principle of bank loan less amount victim
    recovers form liquidation).
   United States v. Galloway, 509 F.3d 1246 (10th
    Cir. 2007) (where loss was unclear gain was
    used as an estimate of loss)
   United States v. Confredo, 528 F.3d 143 (2d Cir.
    2008) (defendant entitled to show he
    subjectively intended loss was less than face
    amount of loan application).
           Final Thoughts
1.   Determine n.3(E)(ii) amount and be
     ready to fight for it!

2.   Determine if there is a lesser amount
     and if so, be ready for a § 3553(a)
     argument

				
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